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Testing for unit roots in nonlinear heterogeneous panels with smoothly changing trends: an application to Scandinavian unemployment rates

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  • Rickard Sandberg

    (Stockholm School of Economics)

Abstract

This paper derives panel unit root tests, based on the unit root tests in single time series by He and Sandberg (Oxf Bull Econ Stat 68:835–861, 2006), in a nonlinear dynamic heterogeneous panel accommodating smooth structural changes in the intercepts, in the dynamics, and in the trends. The finite sample size properties of the tests are satisfactory, and the tests are conspicuously more powerful than the panel data unit root tests by Im et al. (J Econom 115:53–74, 2003; Bull Econ Stat 67:393–419, 2005), and Pesaran (J Appl Econom 22:265–312, 2007) in panels subject to structural changes. To accommodate panels with cross-section-dependent idiosyncratic errors, a bootstrap version of the tests is considered. The tests are applied to unemployment rates in Scandinavia, and strong evidence against the hysteresis hypothesis is found. This is not the case if panel unit root tests based on a linear panel or a nonlinear panel with a break in the intercept are applied.

Suggested Citation

  • Rickard Sandberg, 2016. "Testing for unit roots in nonlinear heterogeneous panels with smoothly changing trends: an application to Scandinavian unemployment rates," Empirical Economics, Springer, vol. 51(3), pages 1053-1083, November.
    • Handle: RePEc:spr:empeco:v:51:y:2016:i:3:d:10.1007_s00181-015-1043-7
    DOI: 10.1007/s00181-015-1043-7
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    2. Marina Faďoš & Mária Bohdalová, 2019. "Unemployment gender inequality: evidence from the 27 European Union countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(3), pages 349-371, September.

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    More about this item

    Keywords

    Dynamic nonlinear heterogeneous panels; Macroeconomic panels; LSTAR; LSTART; Nonlinear trends; Structural breaks; Unit root; Hysteresis; Bootstrap;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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